What is “employee raiding” and how it can be prevented to protect trade secrets? While the primary intention is to acquire the confidential information known by employees, employee raiding refers to the practice where employees are unlawfully induced to leave one employer and accept employment with another employer. However, since it is impossible to prevent employee raiding entirely, employers should take and implement measures and policies that would help to curb employee raiding in a bid to protect trade secrets and/or confidential information and retain employees.
As a way of continuing with this discussion, we now focus on the concept of “No-Hire Agreements” in this blog post and Part XVIII of our series.
Preventing Employee Raiding Through “No-Hire Agreements”
At times, in attempts to protect their confidential information and/or trade secrets, competitors agree that they will not poach each other’s employees by signing and entering into “no-poaching” or “no-poach” covenants known as “no-hire agreements.” However, pursuant to 15 U.S.C. § 1, employers (competitors) should be aware that such “no-poaching” or “no-poach” agreements may or may not be enforceable as restraints under the Sherman Act.
Ideally, the Sherman Act (15 U.S.C. § 1) provides that any “combination or conspiracy to monopolize, attempted monopolization, or actual monopolization,” and “every conspiracy, combination, or contract in restraint of trade” is per se illegal. However, as mentioned above, the Sherman Act prohibits only unreasonable restraints and not every restraint of trade, as ruled by the Supreme Court years ago. While it may comprise some level of reasonableness and, therefore, may be lawful under the Sherman Law, a good example is an agreement between two entities to form a merger. However, this does not imply that trade is not restrained.
Usually, courts may typically deem covenants not to compete for employees valid when such agreements are reasonably limited in scope for or ancillary to a legitimate business contract. However, no-hire agreements would be considered naked restraints on trade when they are not reasonably limited in scope and/or not ancillary to a lawful employment contract. This implies that employers (competitors) should consider whether no-hire agreements are (1) reasonably limited in scope for and/or (2) are ancillary to a legitimate business contract to make them enforceable as restraints under the Sherman Act.
In Part XIX, we will conclude this series by hammering on how to approach and combat incidents of employee raiding once they occur in our last blog post titled “Dealing with Employee Raiding Once It Happens.”
Until then, stay tuned for more education, training, and legal guidance. In the interim, reach out to us with questions and/or comments on our website at the Contact Us page!
Always rising above the bar,
Isaac T.,
Legal Writer, Author, & Publisher.